DBRS Limited (DBRS Morningstar) confirmed the Financial Strength Rating of Genworth Financial Mortgage Insurance Company Canada (Genworth or the Company) at AA.

DBRS Morningstar also confirmed the Issuer Rating and Senior Unsubordinated Debt rating of Genworth MI Canada Inc. (Genworth MI Canada), Genworth's holding company, at A (high). All trends have been changed to Negative from Stable.

KEY RATING CONSIDERATIONS

The trend change to Negative recognizes the ongoing uncertainty regarding future economic conditions resulting from the ongoing Coronavirus Disease (COVID-19) pandemic, including the risk arising from the very high current levels of unemployment and rapidly weakening economic conditions. While the Company is not expected to be impacted in any significant manner in the near term, as the anticipated increase in mortgage delinquencies will take some time to be processed and government actions are likely to ameliorate the immediate impact of the downturn, it is expected that the Company's claims and losses will increase in the next 12 to 18 months given expectations of negative economic growth in 2020 and very elevated unemployment levels through 2021. Adding to this stress is the high degree of uncertainty surrounding the length of the downturn and the nature of the eventual recovery, which could result in a much weaker outcome for the economy. Even though the outlook has deteriorated rapidly, Genworth's fundamentals remain excellent, including its consistently strong financial metrics and large market share. DBRS Morningstar recognizes the Company's ability to navigate through the current crisis, given its proactive management, a conservatively underwritten insurance portfolio, and high levels of regulatory capital.

RATING DRIVERS

Given the Negative trend and the current economic conditions, an upgrade of the ratings is unlikely in the near term. The trend could return to Stable if the Company demonstrates its ability to navigate the ongoing economic crisis, while maintaining its high levels of regulatory capital. Conversely, a ratings downgrade could result if its capital adequacy deteriorates substantially, leading to a reduced buffer over regulatory capital requirements, or if there is a material deterioration in its loss ratios over an extended period of time that negatively impacts earnings.

RATING RATIONALE

In recent years, Genworth's financial metrics have benefitted from a strong housing market and low unemployment levels, resulting in very low default rates, high cure activity, and stable and predictable earnings. In the past decade, the Company has also strengthened its borrower profile, enhanced its risk management, and stress tested its insurance portfolio for low-probability, high-severity adverse scenarios that include material increases in unemployment and declines in house prices. Nonetheless, the Company faces an unprecedented challenge in the unusual nature of the current economic climate, particularly the abrupt slowdown in the economy and the rapid increase in unemployment, combined with the uncertainty of how long the stressed conditions will persist. This could result in very high claims and losses, if economic conditions worsen further or if the economy takes much longer to recover than expected.

Canadian mortgage insurers are highly regulated, with insurers subject to stringent underwriting criteria and minimum regulatory capital levels. The credit profile of the Company's average borrower is strong and is reflected in its loss ratios, which have been low for the past few years relative to the historical norm. As a monoline insurer, risk increases significantly during economic downturns, when economic growth prospects weaken and unemployment increases. Generally, mortgage default rates are closely linked to changes in unemployment. Given current expectations, claims are likely to rise markedly in 2020 and 2021, increasing the Company's loss ratios from their current low levels. Mitigating the impact of this stressed environment are the Company's prudent underwriting and comprehensive risk management practices, as well as any offsetting impacts from various programs that have been implemented to mitigate the impact of the coronavirus on the Canadian economy, including the allowance of mortgage deferrals by most lenders and the payment of the Canada Emergency Response Benefit to eligible unemployed workers. Good levels of regulatory capital also provide an adequate buffer against unexpected increases in losses. To note, Genworth maintained minimum regulatory capital requirements through the 2008 economic downturn in Canada.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:

All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Mortgage Insurance Companies (December 13, 2019).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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Ratings

Genworth Financial Mortgage Insurance Company Canada

Date Issued	Debt Rated	Action	Rating	Trend	Issued

i

US = USA Issued, NRSRO

CA = Canada Issued, NRSRO

EU = EU Issued, NRSRO

E = EU endorsed

Unsolicited Participating With Access

Unsolicited Participating Without Access

Unsolicited Non-Participating

17-Apr-20	Financial Strength Rating	Trend Change	AA	Neg	CA

Genworth MI Canada Inc.

Date Issued	Debt Rated	Action	Rating	Trend	Issued

i

US = USA Issued, NRSRO

CA = Canada Issued, NRSRO

EU = EU Issued, NRSRO

E = EU endorsed

Unsolicited Participating With Access

Unsolicited Participating Without Access

Unsolicited Non-Participating

17-Apr-20	Issuer Rating	Trend Change	A (high)	Neg	CA
17-Apr-20	Senior Unsubordinated Debt	Trend Change	A (high)	Neg	CA

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